Part 4 of the 5-Part Series on 10 basic errors made when filling out IRS Form 1042-S
The international tax experts at LSL CPAs understand that filling out Form 1042-S can be difficult if you do not have the experience and expertise of a tax professional. The process is so challenging that the IRS has a website page focused on the challenges involved: Ten most common errors for completing the Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
The IRS is doing their best to effectively deal with globalization and the presence of the international community in the American economic spectrum. As a result, they assure the site visitor that the page is designed to help you. Although this is probably true, the information delivered is quite difficult for the nonprofessional to understand and properly use to their benefit.
As the 4th part of this 5-Part series, let us provide you with Problem 7 and Problem 8 of the 10 most common errors the IRS wants you to avoid when completing Form 1042-S:
7) A Qualified Intermediary Employer Identification Number (QI-EIN) is entered in Box 14 (Withholding Agent’s EIN field) and Box 12 (Recipient Code field) reports a recipient code other than “12” (Qualified Intermediary). In addition, the QI EIN checkbox in Box 14 is checked and the Withholding Agent EIN is not a QI-EIN. Please always remember that A QI-EIN is for QI reporting purposes only and should not be used on any tax return other than Forms 1042, 1042-T, 1042-S or 945.
8) Country of residence entered in Box 15 (Recipient’s Country of Residence for Tax Purposes field) is inconsistent with the country code entered in Box 16 (Recipient’s Country Code field). The country code used must be a valid code taken from the Country Code Table. The use of “OC” or “UC” will generate an error condition. If a recipient is claiming treaty benefits, the country code can never be “OC” or “UC.”
What exactly is a QI-EIN and do you already have one? What is a Withholding Agent and why do they have their own field? What are the treaty benefits that can be taken and should you be taking them? If you are unable to designate your country of residence, then how can you fill out the form? If a single piece of the puzzle is missing, should you then withhold at the highest rate?
The problem is that one mistake can spell disaster. Yes, the IRS is doing their best to enhance the processing of Chapter Three Withholding (CTW) Program information returns. The Internal Revenue Service honestly wants to help, but these instructions are downright confusing to the nonprofessional. Luckily, such challenges are never a problem and the answers second nature to our international tax experts.
When it comes to such key distinctions, it is a mistake to work with an inexperienced accountant. You need to work with tax experts that have the proven track record when it comes to IRS foreign reporting and withholding requirements. Your tax representative should know how to fill out Form 1042-S because they have done it countless times in the past.
LSL CPAs has the expertise to guide you through filling out IRS Form 1042-S without making any errors and knowing how to optimize your withholdings. In addition, although this content contains accurate information, it is inherently limited on account of the length of the article and the complexity of the issues at hand. As a result, it presents only a partial view of the subject matter. To learn more about how these issues might apply to your particular filing case or tax situation from a more three-dimensional perspective, please call LSL CPAs international tax expert Yana Weaver at 714.569.1000.
